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Value of supply between distinct and related persons

related persons

Value of supply between distinct and related persons (excluding Agents).

  • A person who is under influence of another person is called a related person
  • Like members of the same family or subsidiaries of a group company etc.
  • Under GST various categories of related persons have been specified.
  • The relation may influence the price between two related persons, therefore, special valuation rule has been framed to arrive at the taxable value of transactions between related persons.
  • In such cases following values have to be taken sequentially to determine the taxable value: –
    1. Open Market Value
    2. Value of supply of like kind and quality.
    3. Value of supply based on cost i.e. cost of supply plus  10% markup.
    4. Value of supply determined by using reasonable means consistent with principles & general provisions of GST law. (Best Judgement method)

However, if the recipient is eligible for full input tax credit, the invoice value will be deemed to be the open market value.

It has also been provided that where the goods being supplied are intended for further supply as such by the recipient, the value shall, at the option of the supplier, be an amount equivalent to 90% of the price charged for the supply of goods of like kind and quality by the recipient to his unrelated customer.

Value of supply of goods made or received through an agent

1. Open market value of goods being supplied, or, at the option of the supplier, 90% of the price charged for the supply of goods of like kind and quality by the recipient to his unrelated customer.

Illustration – 

Where a principal supplies groundnut to his agent and the agent is supplying groundnuts of like kind and quality in subsequent supplies at a price of Rs. 5000/- per quintal on the day of supply. Another independent supplier is supplying groundnuts of like kind and quality to the said agent at the price of Rs. 4550/- per quintal. The value of the supply made by the principal shall be Rs. 4550/- per quintal or where he exercises the option the value shall be 90% of the Rs. 5000/- i.e. is Rs. 4500/- per quintal.

2. In case of value cannot be determined under (1) then the following values have to be taken sequentially to determine the taxable value: –

  1. Value of supply based on cost i.e. cost of supply plus 10% markup.
  2. Value of supply determined by using reasonable means consistent with principles & general provisions of GST law. (Best Judgement method).

Value of supply of services in case of a Pure Agent

The expenditure and costs incurred by the supplier as a pure agent of the recipient of the supply of service have to be excluded from the value of supply.

Illustration – 

Corporate services firm A is engaged to handle the legal work pertaining to the incorporation of Company B. Other than its service fees, A also recovers from B, registration fee and approval fee for the name of the company paid to Registrar of the Companies. The fees charged by the Registrar of the companies registration and approval of the name are compulsorily levied on B. A is merely acting as a pure agent in the payment of those fees. Therefore, A’s recovery of such expenses is a disbursement and not part of the value of supply made by A to B.

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